New super tax more than meets the eye: FSC

Yasmine Raso

Senior Journalist, Financial Newswire

6 March 2023

The Financial Services Council (FSC) has found the Government’s new 30 per cent tax on superannuation balances over $3 million will impact more than previously stated 80,000.

Analysis conducted by the FSC on new Australian Taxation Office (ATO) data released on Friday showed it is more likely that 500,000 current taxpayers will be affected by the proposed changes to the concessional tax rate and cap on super balances.

Blake Briggs, FSC chief executive, said this will occur if the Government does not index the suggested $3 million balance cap, leaving more Australians – including 204,000 under the age of 30 – susceptible to breaching the cap at some point in their life and coping with a 30 per cent tax.

“500,000 impacted Australians is over six times the current Government estimates, which only takes into account balances that are currently over $3 million,” he said.

“Leaving the cap stuck at $3 million will mean that in today’s dollars a 30-year-old will have a real cap of around $1 million, calling into question the intergenerational fairness of an unindexed cap.

“Caps in the superannuation system are indexed to ensure generational fairness, so that each generation gets the same outcomes and benefits from the superannuation system.”

The FSC also signalled it will work with the Treasury throughout the consultation process for the proposed changes, highlighting areas for improvement including:

• “The long-term impact if the $3 million threshold is not indexed;
• The interaction with the transfer balance cap;
• How investment earnings will be calculated and whether they will be applied to unrealised gains;
• Impacts on consumers in accumulation phase who are unable to adjust their super balances; and
• How contributions from structured settlements on personal injuries will be treated.”

This comes after the modelling produced real scenarios of taxpayers at different life stages, highlighting the impacts of the changes:

• A 25-year-old earning $100,000 with a current superannuation balance of $35,000 would reach the $3 million threshold by the time they retire at age 65.
• A 45-year-old earning $150,000 today with a current superannuation balance of $650,000 would reach the $3 million threshold by the time they retire at age 65.
• A 55-year-old earning $220,000 today with a current superannuation balance of $1,400,000 would reach the $3 million threshold by the time they retire at age 65.